Lawyer Deposed by Bar Is Indicted on Federal Counts

Lawyer Richard Degallegos, whose practice was recently taken over by the State Bar, was indicted Wednesday by a federal grand jury on charges ranging from defrauding clients to filing a false claim for a tax refund.

The indictment alleges that Degallegos, 48, was involved in four criminal schemes during the last six years. He is accused of misappropriating funds belonging to his clients, failing to comply with the orders of a bankruptcy court judge, setting up an illegal rebating scheme while working as a life insurance salesman in 1984 and falsely claiming an income-tax refund of more than $85,000 in 1985.

Degallegos has been under investigation since November, after many complaints were made that he failed to show up for court appearances and misappropriated his clients’ money. Until Wednesday, there had been no allegations that he participated in other fraudulent business schemes as a life insurance salesman.

5-Month Investigation

If convicted of all the charges, Degallegos could receive a maximum jail term of 115 years, a fine of $6 million and whatever additional punishment the U. S. Bankruptcy Court wished to mete out.

The 24-count indictment is the culmination of a five-month investigation by the U. S. attorney’s office in San Diego, the San Diego County district attorney’s office and the Internal Revenue Service.

In addition, June Lee Boothby, Degallegos’ former business partner in his Poway legal practice, was indicted on four counts of overstating her income while seeking loans and lines of credit in excess of $100,000 from four banks from July to October, 1988.

Boothby is also under investigation on suspicion of illegally practicing law in California, according to State Bar officials. Although Boothby is a licensed attorney in Washington, she is not in California, said Victoria Molloy, trial counsel for the Bar. Nevertheless, Boothby made several court appearances on behalf of Degallegos, Molloy said.

Arrest warrants were issued Wednesday for Degallegos and Boothby. Assistant U. S. Atty. George D. Hardy said he expected both to turn themselves in or be taken into custody Wednesday night. Hardy said Degallegos has no permanent address in San Diego, but added that authorities believe they know his whereabouts.

Phones Disconnected

Degallegos, whose business telephones were disconnected after his law practice was taken over, was unavailable for comment Wednesday.

The indictment alleges that between June and December, 1984, Degallegos defrauded the Pennsylvania-based insurance firm of AIG Life with an illegal rebating scheme. According to the indictment, he set up life insurance policies, paid the premiums himself, received a 100% commission and a bonus commission--then canceled the policies and demanded a refund of the premiums from AIG. AIG reimbursed Degallegos for more than $126,900.

In another criminal count, Degallegos is charged with contempt of court for willfully disobeying the orders of a U. S. Bankruptcy Court judge. Degallegos claimed bankruptcy for both himself and his insurance company in 1983. In 1985 he was ordered to turn over his financial records and cooperate with the bankruptcy court, but did not comply, the indictment says.

Degallegos is also charged with filing a false claim for an income-tax refund of $85,377 in 1985, claiming that amount had been withheld from his 1984 taxes. According to the IRS, Degallegos knew his claim was false, that the money had not been withheld and that he was not entitled to it.

Degallegos’ legal problems began to accumulate in November, when more than 2 dozen clients of his law practice filed complaints with the Bar at the county and state level. In December, the State Bar made the unusual move of taking over Degallegos’ law offices and placing him on “involuntary inactive status,” meaning he cannot practice law in California unless he is cleared of wrongdoing.

More Than 1,000 Clients

After a two-day hearing, Bar officials decided that Degallegos, who also maintained law offices in Salinas, Santa Maria and Calexico and claimed to have more than 1,000 clients, had taken on too much work to handle and was not meeting his clients’ needs.

The Bar also brought formal charges against Degallegos on April 17, charging him with misuse of clients’ funds--ethical misconduct that could result in disbarment, according to Molloy. He will probably be tried in December, Molloy said.

The federal indictment echoes the Bar’s allegations, alleging that Degallegos collected money on behalf of clients, then kept it. Among his schemes, Degallegos negotiated litigation settlements for clients, then kept all or some of the money from the settlements, the indictment says. He also allegedly kept money from the assets of corporations he was hired to help liquidate.

Degallegos, a graduate of Western State University of Law in San Diego, has blamed his legal problems on his former wife, Susan Eblen, whom he claims urged former clients to file unfounded complaints against him.

In a January letter to the State Bar protesting its action, Degallegos wrote that he had been abused by the “unconstitutional application” of the law and said he believed the Bar’s sanctions were “prompted by media and political pressures to seek out the sacrificial lamb.” Last month, Degallegos mailed a “Who Framed Richard Degallegos?” kit to reporters, containing a T-shirt, audiocassettes, a post card and 75 pages of poems, songs and newspaper clippings.